As a former Executive Director of the World Bank I know that the columnists of the Financial Times have more voice than what I ever had, and therefore they might need some checks-and-balances.
Currently, having probably trampled on some delicate ego, I am a persona non grata at FT.
Would the child shouting out “the Emperor is naked” have his observation published in FT? Does the child need a PhD for that?

For more see "A Blog is Born" at the very bottom.

November 30, 2011

Sir, Martin Wolf in “What the IMF should tell Europe” November 30, writes “Fiscal indiscipline did not cause this crisis. Financial and broader private sector indiscipline, including by lenders in the core countries, was even more important.” Again, Martin Wolf refuses to acknowledge that most of that “indiscipline” was caused by the incestuous group-think that afflicted bank regulators and made them come up with truly senseless regulations. He should consider that his call for “ruthless truth-telling” applies to him too.

What I would urge the IMF to use its portent voice for at this moment is to instead of advising Europe advising the Basel Committee, telling it:

"You allowed the banks to lend to ´infallible sovereigns´ and ´super-safe´ triple-A rated privates with little or no capital at all, and, as a result, the monstrous exposures that turned safe-havens into dangerously overcrowded havens were generated... But now is not the moment to make up for all the capital that should have been in place when banks booked their assets, not when the risks were discovered… and so allow all the banks to keep their current exposures backed with whatever bank capital was originally required from them… so to permit that all new bank capital is not to fill holes but can be used to back new operations… but which all have to meet the same basic capital standard no matter what the ex-ante perceived risk is.”

November 15, 2011

Sir, I know that the current crisis, and that has until now mostly affected the Western World, was primarily caused by the bank regulators who innocently thought they were doing us a favor, by creating artificial incentives for the banks to generate dangerously excessive exposures to what they officially perceived as “not-risky”, like the triple-A rated securities and “solid” sovereigns, while, equally dangerously, hindering the banks to attend to the credit needs of the “risky”, the small businesses and entrepreneurs. This the regulators did by means of their silly capital requirements for banks based on ex-ante perceived risks of default of borrowers.

That is why I truly feel upset when, silencing my voice, you allow Ronnie Chan the space to argue that “The west is now in many respects too free”… and that perhaps the United States might be better off leaning more towards China’s ways, “The west is in danger of frittering away its freedom” November 15.

What a baloney! What the west most needs is to free their banks from their current regulations. If the United Sates does collapse and therefore China does not collect it investments or can export more to it, I wonder where Mr. Ronnie Chan would prefer to be… in the United States or in China? I know for sure where I would like to be and I also hope those in the Financial Times are clear on that too.

November 14, 2011

Sir, Patrick Jenkins and Brooke Masters on November 12report that Andrew Haldane, the Bank of England’s executive director of financial stability opines that “regulations that potentially constrain lending to small businesses should be eased [made less capital intensive] when the economy is suffering”. That is a marvelous opening for someone like me who has been for more than a decade clamoring to eliminate the regulatory discrimination against small businesses, though I would of course want that to happen at all times and not only when the economy is suffering.

Andrew Haldane, with much honesty also says “At present [the risk-weights] are calibrated to the risk of a bank. In future they need to reflect returns to society”. Yes Mr. Haldane that is what they should have done all the time.

What is really sad though is to read a senior regulatory specialist at a global bank saying “You can’t just change risk weightings at whim because what really matters is that risk is priced correctly”… this specialist, as most other specialists, has still not been able to figure out that you cannot price risk correctly when different risk-weights are imposed on different assets… and that is what have us all now drowning in the ocean of the ex-ante perceived as not at all risky assets.

November 13, 2011

Sir, Tony Barber writes “Enter the technocrats” November 12, and that could be good unless of course it is the failed technocrats who are entering… and frankly most of the European and American technocracy, in the area of finance, have failed miserably.

Technocrats who never understood, and still fail to understand, that the risk-weights used for determining the capital requirements for banks that based on ex-ante perceived risk of default, were layered on top of the banker’ own risk-weights, which drove the banks to create dangerously high exposures to what is officially perceived as “not-risky”, are not worthy being called technocrats… no matter how revered they are in Brussels.

At this time, when we all need the risk-takers to work for us, they are being choked by the lack of access to bank credit… just because these failed technocrats believe them to be risky. Come on, these were the regulators who believed sovereigns to be safe! Are we still supposed to blindly follow their courageous calls for entering their land of no-risks?

These wimpy technocrats –bureaucrats, who demonstrated even less courage than many politicians, and who are in fact more responsible that most politicians for this crisis, do not seem to be the leaders we now need!

November 12, 2011

FT, I dare you, following your motto “without fear and without favour”, to mark to market the bank regulators, like you so valiantly do with fallen Berlusconi in “Public Liability”, November 12.

For instance, how many billions in lower interest did the regulators subsidize governments with, by allowing banks to hold zero or minimal capital against loans to their solid sovereigns? How much of the excessive sovereign debt is the direct result of such regulatory bias? How much bank lending to “risky” small businesses and entrepreneurs did not happen because these had to pay higher rates to make up for not being treated equally favorable?

In November 1998 in an Op-Ed titled “Burning the bridges in Europe” and that had to do with the fact there was no route out of the euro I wrote “That the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. Exchange rates, while not perfect, are escape valves. By eliminating this valve, European countries must make their economic adjustments in real terms. This makes these adjustments much more explosive.”

That Op-Ed clearly shows that I predicted what is now happening, but, what I was not aware of at that time, because I am neither a banker nor a regulator, was that the bank regulators were going to impose such a sick and really communistic capital controls in favor of their governments. Shame on them!

November 10, 2011

Sir, Noreena Hertz writes that “Women are getting a raw deal in business and in finance” November 10, and bases that opinion on a study about the differences between women and men in terms of access to bank loans. She holds that if there was to be less discrimination more women entrepreneurs would be able to help out the economy. and she also makes reference to the possible legal consequences for the lenders.

She might be right, but, whatever discrimination women entrepreneurs are subject to because of their gender, pales in comparison to the odious arbitrary regulatory discrimination they are subject to because they are officially perceived as “risky”, and therefore the banks are forced to hold many times more capital when lending to them than what they are required to have when putting their money in triple-A rated instruments or sovereigns.

Since the “risky” are already discriminated against by banks in terms of interest rates, amounts, maturities and much other, the above amounts to layer a discrimination on top of a discrimination… something akin to asking the banks to hold more capital when lending to women.

If Noreena Hertz really wants to help she should first aim at the regulatory discrimination and once that idiocy dis taken care of, then she might perhaps request banks to be required to have somewhat less capital when lending to women, to compensate for the remaining discrimination.

November 09, 2011

Sir, Martin Wolf in “thinking through the unthinkable” November 9, quotes Thomas Mayer of Deutsche Bank saying “below the surface of the euro area´s public debt and banking crisis lies a balance of payments crisis caused by a misalignment of internal real exchange rates”.

Yes, the misalignment of the real exchange rates within the eurozone were always in the cards, but the main reason for why they could grow so out of proportion was the fact that it could be financed… and the foremost cause of that were the truly stupid regulations which allowed the banks to finance European sovereigns against little or no capital at all.

I would presume Martin Wolf has many friends among regulators, while I have none, but nonetheless he should have used his column long ago to ask… is it rational to allow banks to finance for instance Italy and Greece, or any sovereign, against basically no capital at all? Had he and his colleagues done that, then perhaps Europe would have had a better chance to nip the current crisis in the bud.

Sir, Alex Barker in “Barnier vs the Brits” November 9, writes about the fears of Sir Mervin King in that Brussels reforms will reshape a vital British industry to the benefit of eurozone rivals.

I do not know much about the competitive aspects of UK banks but, I would indeed be frightened if the banks of my country were to be even partially supervised by someone who when going to Washington D.C. presented in a brochure, as a success story of his office: “A French citizen complained about discriminatory entry fees for tourists to Romanian monasteries. The ticket price for non-Romanians was twice as high as that for Romanian citizens. As this policy was contrary to EU principles, the Romanian SOLVIT centre persuaded the church authorities to establish non-discriminatory entry fees for the monasteries. Solved within 9 weeks.” http://ec.europa.eu/solvit/site/success/index_en.htm

And, if an owner of a small business or as an entrepreneur, classified as “risky” by the regulators, and in need or want of bank credit, I would also be scared witless by someone who even after the world has gotten itself into such enormous difficulties by the excessive bank exposures to what was ex-ante officially deemed as absolutely not-risky, during a conference in Washington, insisted on that his responsibility as a regulator is simply to avoid excessive risk-taking… but, come to think about it… so does also UK´s Sir Mervin King opine. Help!

November 05, 2011

Yes, you wrote to Berlusconi “In the name of God and Italy go!” November 5 and I do not object to even one comma.

But, in the same vein, I would tell all bank regulators even loosely associated with the Basel Committee “In the name of Europe, America and the Western World go! Their treacherous risk avoidance gospel they preach to our banks, if allowed to continue, is going to take Europe, America and the Western World down.

November 02, 2011

Sir, when reading Rowan Williams, the Archbishop of Canterbury’ “Time for us to challenge the idols of high finance” November 2, I cannot but regret he did not include the need to also challenge the idols of global bank regulations.

These regulators, more than anyone, because of their capital requirements based on ex-ante perceived risk of default, are the most to blame for a world that is sinking dangerously fast, in the overexposure to what was ex-ante perceived as not risky, like AAA rated securities, Greece and many more sovereigns; and the underexposure to those perceived as risky, the small businesses and entrepreneurs.

If instead of analyzing the pro and cons of a financial transaction cost they had analyzed what those regulations mean to the downtrodden “risky”, in terms of additional burdens, and in terms of gifts to the already favored “not-risky”, they might have understood the real inequalities that are present in the banking system and prioritized their petitions better.

Sir, Martin Wolf’s “Creditors can huff and puff but they depend on debtors” November 2, is a great expose on the Janus-faced realities of deficits and surpluses, and also of the too-much-lending and the too much borrowings.

I just wish Mr. Wolf, and so many with him, could get to understand that precisely the same relation exists between safety-and risk-taking. If the world does not take risks it will not be safe. On the contrary by interfering with their risk-weights based on what they perceived as not-risky they pushed the world into one of the greatest economic crisis ever.

There is something fundamentally wrong when, for instance a UK bank, is required to have 8 percent in capital when lending to a UK small businesses or entrepreneur, but is (or at least was) allowed to have only 1.6 percent when lending to a sovereign rated like Greece was, which has absolutely nothing to do with the credit rating of Greece being correct or not.

It really amazes me that Mr. Wolf does not see that risk-avoiders can huff and puff but they depend on risk-takers.

Me and my constituency!

Me and my constituency!

FT, just so that you know:

Some very few regulators thinking they were capable of managing the bank risks of the world, caused and are still causing immense sufferings, and you Sir are refusing to help holding them accountable for that.

My wicked question to FT

When do banks most need capital, when the risky turn out risky, or when the "not-risky" turn out risky? --- Yep, I think so too!

Videos: The Financial Crisis

My credentials

I have more credentials than most to speak out on the financial crisis and the subprime financial regulations having spoken out loudly about that since 1997...which could be embarrassing to “experts” with weak egos.

Most of those who think of themselves so broadminded when asking for “out of the box thinking” are so very narrow-minded they can only accept what comes, if that outside box lies “within their own small networks”.

Thank you, Martin Wolf

And on July 12 2012 Wolf also wrote that when "setting bank equity requirements, it is essential to recognise that so-called “risk-weighted” assets can and will be gamed by both banks and regulators. As Per Kurowski, a former executive director of the World Bank, reminds me regularly, crises occur when what was thought to be low risk turns out to be very high risk."

And that is something that I of course also appreciate, but that yet makes me curious on why Wolf does not follow up on it.

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I don’t take comments here because I might not have the time to answer (or censor) them and I hate unanswered comments, but, if you want me to comment on something somewhere else invite me and I might show up: perkurowski@gmail.com

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Off-the-blog

One great perk I get from maintaining a blog like this is that it allows me to sustain many conversations with some great journalists who also need and wish to be kept “off-the-record” or as I call it “off-the-blog”.

Yet one wonders

Between January 2003 and September 2006, out of 138 letters to the editor that I sent to the Financial Times before I placed them on this blog they published these 15. Not bad! Thank you FT!

Unfortunately, since then and until the very last day of the decade, out of some 1.000 letters that you can find here, FT published none, zero, zilch. Of course FT is under no obligation whatsoever to publish any of my letters and of course one should not exclude the possibilities that my letters might have quite dramatically gone from bad to worse… yet one wonders.

My usual suspects are:

1. Someone in FT with a delicate ego feels his or her importance diminished by giving voice to a lowly non PhD from a developing country daring to opine on many issues of developed countries.

2. That FT has some sort of conflict of interest with the credit rating agencies that makes it hard for them to give too much relevance to someone who considers they have been given too much powers.

3. The FT establishment had perhaps decided there were only macro economic problems and not any financial regulation problems, and wanted to hear no monothematic contradictions on that.

4. That FT feels slightly embarrassed when someone repeatedly asks the emperor-is-naked type question of what is the purpose of the banks and realizing this was something FT should have itself asked a long time ago.

5. It is way too much oversight for FT to handle.

6. Or am I just supposed to be a living example of one half of the Financial Times motto, namely that of "without favour"Which one do you believe is closest to the truth?

A Blog is born

I like reading The Financial Times, or FT as it is known, and I frequently write letters to the editor and some of them that have indeed been kindly published, for which I feel thankful. But then I realized that all those letters to the editor that for reasons impossible for me to comprehend were never published, were condemned to an eternal silence not of their own fault, and so I decided to, at a marginal cost of zero, to resurrect them and keep them alive, right here.

English is not my mother language so bear with me and you’ll probably note when my letter has been published in FT by its correctness. Swedish is my mother language but I have not written anything serious in it for about 40 years and last time I tried, they just laughed their hearts out because of my démodés. Polish is my father language but, unfortunately, I do not speak a word of Polish, much less write it. Yes Spanish is my language, as I am from Venezuela and although I trust I write in it with great flair, I would still never dream of publishing an article in Spanish without having it edited by my wife.

And so friends here is my Tea with FT blog with my old and new letters to the editor. I hope you will share them with me now and again, and then again and again.

Welcome, and cheers, as I believe they say over there.

Per

PS. Just so that FT does not get too cocky and believe it is my only window to the world, I will now and again publish a letter sent to the editor of another publication.